Financial investments in the Brazilian capital market

Below, you will find the rule that describes the procedures to be followed by foreign investors who wish to invest in the Brazilian stock market directly. 

The main disposition is the need for prior registration with the Brazilian Securities and Exchange Commision (CVM) and the need for a custody agent (a bank or similar institution):

Art. 2. Prior to the beginning of its operations, the non-resident investor must:

I - constitute one or more representatives in the Country;

II - obtain registration before the Securities and Exchange Commision; and

III - constitute one or more custodians authorized by the Real Estate Values Commission.

§ 1 The representative referred to in item I must be a financial institution or an institution authorized to operate by the Central Bank of Brazil and is not confused, necessarily, with the one required by the tributary law.

This is also the hardest part. Currently, Brazilian banks and stock brokers are too severe when they evaluate the profile of foreign investors. The market is focused on high net worth individuals and large investment companies. I`d say that anyone with less than 10 million USD would have little chance of convincing a bank to provide custody services. 

RESOLUTION No. 4373, OF 29 SEPTEMBER 2014

Provides about financial applications of non-resident investors in the financial and capital markets in Brazil and give other measures.

The Central Bank of Brazil, pursuant to art. 9 of the Law No. 4,595 of December 31 1964, announces that the National Monetary Council, at session realized on September 25 and 29 of 2014, based on the arts. 4, sections V, VIII and XXXI, and 57 of the mentioned Law, on the art. 1^st of the Law No. 4,728, of July 14, 1965, on the art. 3 of the Law No. 6,385, of December 7, 1976, and on the art. 65, § 2, of the Law No. 9,069, of June 29, 1995, and considering the provisions of the Law No. 4,131, of September 3^rd, 1962, on the Decree-Law No. 1,986, of December 28, 1982, on the Decree-Law No. 2,285, of July 23, 1986, on the art. 52 of the Act of the Transitory Constitutional Provisions of the Constitution of the Republic of 1988, art. 32 of the Law No. 8,383, of December 30, 1991, on Law No. 10,303, of October 31, 2001, on the Law No. 11,312, of June 27, 2006, and on the Provisional Measure No. 2,189-49 of August 23,2001,

DECIDED:

Art. 1 The applications in the financial and capital markets in Brazil and the financial transfers to and from outside, in national or foreign currency, of investors non-resident in Brazil, shall comply with the provisions of this Resolution, in addition to the exchange norms and the specific legislation standards.

§ 1 The applications through Depositary Receipts mechanism should observe the Regulation Annex II to this Resolution.

§ 2 The applications to which refers the caput must be executed in the same instruments and operational modalities available for investors resident in Brazil.

§ 3 are excluded from the provisions of this Resolution applications of non-resident investors which are holders of national currency deposit accounts in the country that they perform applications in saving or time deposits in the bank itself that is depositary of the account.

Art. 2 The Regulations annexed to this Resolution are approved , which discipline:

I - the application in financial and capital markets of external resources entered in the Country by non-resident investors, even from the accounts in national currency from resident, domiciled or headquartered abroad; and

II - foreign capital investments in the Country through the Depositary Receipts mechanism.

Art. 3 The investments made under this Resolution are subject to registration before the Central Bank of Brazil, in the form of the Regulations Annexes I and II.

Art. 4 Non-resident investors referred to in the Regulation Annex I to this Resolution are subjected to registration before the Securities and Exchange Commission (CVM).

Art. 5. For the purposes of this Resolution the term:

I - non-resident investors, individual or collective, are natural or legal entities, funds and other collective investment entities resident, domiciled or headquartered abroad;

II – registration before the Central Bank of Brazil is the launch of information in the Central Bank Information System (Sisbacen, for the original name in Portuguese) - Electronic Declaratory Registry (RDE, in Portuguese).

Art. 6 Those responsible for the registration, listed in the Regulations Annexes to this Resolution, shall make available for the Central Bank of Brazil the documentation evidential of all the information declared in the RDE, for a period of 5 (five) years from the date of each update.

Art. 7 For the purposes of the registration mentioned on this Resolution, are subject to the conducting, simultaneous exchange operations or international transfers in Reais, without effective delivery of resources and independently of prior authorization of the Central Bank of Brazil:

I – converting the property of non-residents into investments in the financial and capital markets mentioned on this Resolution;

II - the non-resident investor application transfer through the Depositary Receipts mechanism, in accordance with Annex II of this Resolution, to the modality of foreign direct investment in the Country, dealt on the Resolution No. 3,844 of 23 March 2010;

III - the non-resident investor application transfer through the Depositary Receipts mechanism, in accordance with Annex II of this Resolution, for non-resident investors application in the financial and capital markets in the Country, in accordance with Annex I of this Resolution;

IV - the non-resident investor application transfer on the financial and capital markets, in accordance with the Regulation Annex I to this Resolution, for the modality of foreign direct investment in the country, dealt on the Resolution No. 3,844, of 2010, and vice versa.

Art. 8. Failure to comply with the rules mentioned on this Resolution which govern the registration of foreign capital in the Country implies on the prohibition of making financial transfers under the protection of the registration while the irregularities are not solved, without impairment to the application of the applicable penalties under the terms of the law or other regulations.

Art. 9 The Central Bank of Brazil and the Real Estate Values Commission, within their respective areas of competence, are authorized to issue supplementary rules and to take the necessary measures to give enforcement to this Resolution, including what concerns the imposition of penalties.

Art. 10. This Resolution shall enter into force on March, 30 of 2015.

Art. 11 Are hereby repealed, as from March 30, 2015, the Resolutions. No. 1,289, of March 20, 1987, 1,927, of May 18, 1992, 2,247 and 2,248, both of February, 8, 1996, 2,628, of August 6, 1999, 2,689 of January 26, 2000, 2,742, June 28, 2000, 2,786, of October 18, 2000, 3,245, of November 25, 2004, 3,349, of February, 23, 2006, 3,760 of July 29, 2009, and 3,845, of March 23, 2010.

Alexandre Antonio Tombini

President of the Central Bank of Brazil

 REGULATION ANNEX I TO RESOLUTION No. 4,373, OF SEPTEMBER, 29, 2014 NON-RESIDENT INVESTOR APPLICATION ON FINANCIAL AND CAPITAL MARKETS

Art. 1 The applications on the financial and capital markets of external resources entered in the Country by non-resident investors, even from the accounts in national currency of residents, domiciled or headquartered abroad, must comply with this Regulation.

Art. 2. Prior to the beginning of its operations, the non-resident investor must:

I - constitute one or more representatives in the Country;

II - obtain registration before the Securities and Exchange Commision; and

III - constitute one or more custodians authorized by the Real Estate Values Commission.

§ 1 The representative referred to in item I must be a financial institution or an institution authorized to operate by the Central Bank of Brazil and is not confused, necessarily, with the one required by the tributary law.

§ 2. In situations in which, at the entry into force of this Resolution, the representative referred to in item I does not fit in the provisions of §1, the non-resident investor will have 180 (one hundred and eighty) days to promote the regularization of their representation.

§ 3. The Real Estate Values Commission shall regulate the non-resident investor's registry referred to in the item II.

Art. 3. The act of constituting the representative referred to in the item I of Art. 2 of this Regulation shall expressly provide the following powers and obligations to the exercise of the representation function:

I - make and keep updated the registries mentioned in the arts. 3 and 4 of this Resolution;

II - provide the Central Bank of Brazil and the Real Estate Values Commission with the requested information and maintain for a period of 5 (five) years, the individualized control, by represented, of the inputs and remittances undertaken under this Regulation and the proofs of compliance with contractual obligations and of fund transfers;

III - immediately report to the Central Bank of Brazil and the Real Estate Values Commission, considering their respective powers, the termination of the representation contract as well as the occurrence of any irregularity of which he or she becomes aware; and

IV - receive, on behalf of the non-resident investor, subpoenas and notifications concerning judicial or administrative proceedings based on laws regarding financial and capital markets, related to the operations which are object of the representation contract signed with the non-resident investor.

Single paragraph. In case of noncompliance with the obligations mentioned in this Article, the representative is subject to the impediment to the exercise his or her functions of representation, without impairment to the application of any applicable penalties, and the non-resident investor must appoint a new representative.

Art. 4 The financial assets and real estate values traded, as well as the other types of financial transactions carried out by a non-resident investor, resulting from the applications referred to in this Regulation must, in accordance with their nature:

I - be registered, kept in a book or in custody or maintained in a deposit account in an institution or entity authorized to provide such services by the Central Bank of Brazil or by the Real Estate Values Commission, according to their respective competences; or

II - be duly recorded in systems of chambers and of providers of clearinghouse, settlement or registration services duly authorized by the Bank Central of Brazil or by the Real Estate Values Commission.

Art. 5 It is prohibited the use of the financial resources entered in the Country under the terms of this Regulation on transactions with real estate values for purchase or sale out off an organized market, except in the cases mentioned on the regulation of the Real Estate Values Commission.

Art. 6 The institutions mentioned on the items I and II of the art. 4 of this Regulation must, on request, make available to the Central Bank of Brazil and to the Real Estate Values Commission, individualized by the final principal, the registers related to the applications referred to in this Regulation.

Art. 7 Transfers of investments or commercial papers and real estate values ​​owned by a non-resident investor are prohibited if they are not in accordance with the forms provided on the regulation of the Central Bank of Brazil or of the Real Estate Values Commission.

Art. 8 Foreign investments registered before the Central Bank of Brazil resulting from applications on investment funds must be conformed to the provisions of this Regulation, including Mutual Fund of Investment in Emerging Companies (FMIEE, in Portuguese) and Real Estate Investment Fund (FII, in Portuguese).

Single paragraph. The conformation of the applications of non-resident investors in FMIEE and IFI must occur within 180 (one hundred and eighty) days of the entry into force of this Resolution.

REGULATION ANNEX II TO RESOLUTION No. 4373, OF SEPTEMBER, 29, 2014 NON-RESIDENT INVESTOR APPLICATION THROUGH DEPOSITARY RECEIPTS

Art. 1 Must comply with the provisions of this Regulation, non-resident investments through the Depositary Receipts mechanism.

Art. 2 For the purposes of this Regulation, are applied the following definitions:

I - Depositary Receipts: certificates issued abroad by a depositary institution, representative of the assets listed below, deposited in specific custody in the Country:

a) real estate values issued by Brazilian public companies;

b) real estate values eligible to compose the Reference Equity (PR in Portuguese) issued by financial institutions and other public institutions authorized to operate by the Central Bank of Brazil;

II – custodian institution: the institution, in the Country, authorized by the Real Estate Values Commission to provide custody services;

III – depositary institution, depositary bank or issuing bank: the institution that, abroad, and based on the assets listed in the sub items "a" and "b" of the item I, issues the corresponding Depositary Receipts;

IV - sponsoring company: the institution, in the Country, which issues the assets listed in the sub items "a" and "b" of item I object of the Depositary Receipts program and signatory of a specific contract with a depositary institution.

Art. 3 The financial resources which entered the Country for the acquisition of the assets listed in the sub items "a" and "b" of the item I of the Art. 2 of this Regulation in order to integrate Depositary Receipts programs, sponsored or unsponsored, are subject to the application of this Regulation.

Art. 4 Are qualified for the purpose of registration in the Depositary Receipts programs the resources entered the Country for the purchase, in the primary market and in secondary one, of the assets listed in the sub items "a" and "b" of the item I of the Art. 2 of this Regulation, provided that they are negotiated in organized markets.

Art. 5 It competes to the Real Estate Values Commission to approve the Depositary Receipts programs.

Single paragraph. The Real Estate Values Commission shall regulate the process of approval of the Depositary Receipts programs referred to in the caput.

Art. 6 The financial institutions headquartered in the Country may apply for permission before the Central Bank of Brazil in order to participate in Depositary Receipts programs, prior to the approval of the Real Estate Values Commission.

Single paragraph. The launch of Depositary Receipts backed by shares with voting rights or by debt instruments eligible to compose the PR, convertible into shares with voting rights, of financial institutions based in the Country is limited to the percentage of foreign participation allowed under the applicable law.

Art. 7. The registry referred to in art. 3 of this Resolution must be made by the custodian institution on behalf of the depository institution.

Single paragraph. The registry of the external resources entered in the Country based on art. 3 of this Regulation must be made in the form to be set by the Central Bank of Brazil, being linked to the issuing company, to the quantity and to the real estate value or debt instrument eligible to compose the PR object of the Depositary Receipts program.

Art. 8. The custodian institution can accept deposit on the custody of the Program of the assets listed in the sub items "a" and "b" of the item I of the Art. 2 of this Regulation, which are in circulation and are owned by investors resident, domiciled or headquartered in the Country, for the purpose of backing the issue of Depositary Receipts abroad.

Art. 9 The issuing companies as well as individuals or legal entities, resident, domiciled or headquartered in the Country, which deposit real estate values in custody to back the issuance of Depositary Receipts may keep the product of their disposal abroad.

§ 1. If there is no entry in the Country of the value obtained with the disposal mentioned in the caput, the custodian institution must update the investment registry before the Central Bank of Brazil.

§ 2 The power conferred in the caput does not apply to Depositary Receipts programs sponsored by financial institutions and other institutions authorized to operate by the Central Bank of Brazil.

Art. 10. It is the custodian institution responsibility, before the Bank Brazil Central, the processing and control of the disposals mentioned in the art. 9 of this Regulation.

See also:
Opening a Brazilian Bank account for non-residents